by Jim Algar
Washington DC (UPI) Oct 05, 2013
The smartphone world is awaiting the release of Google's next flagship phone -- the Nexus 5, expected by the end of the month -- and will watch to see if it can repeat the successful sales model of its predecessor, the Nexus 4.
The Nexus 4, introduced last November, quickly sold out on the Google Play online market and was unavailable for many weeks until Google got its supply chain cranked up. After that the phone sold well through August of this year when Google announced a price reduction that quickly wiped out the remaining inventory.
Google turned to South Korea's LG Electronics to build its Nexus 4, and it is expected the Nexus 5, when it arrives, will also sport an LG logo somewhere.
When the Nexus 4 was introduced, the average consumer -- used to "buying" a top-of-the line phone from Samsung or Apple from a wireless carrier for $100 or $200 -- might have considered its prices ($299 for an 8GB version and $349 for a 16GB) high.
The rub, of course, was that consumers weren't actually getting that Apple or Samsung phone from a carrier for $100 or $200; the wireless provider was subsidizing the actual $500-$600 price of the phone, recovering their investment by locking the purchaser into a 2-year contract with sufficient margin built into the plan cost to pay for the phone in full.
Those hefty "early termination fees" carriers charged to let customers out of their contract before the 2-year term? That was simply to ensure they recovered the full cost of the phone they paid to Samsung or Apple.
Savvy consumers cottoned on to what Google was offering; a quality, well-built and feature-laden phone for less than the full retail price of its competitors that a customer could take to any GSM carrier -- that mostly meant T-Mobile and AT&T -- and negotiate the best monthly plan rate they could.
The success of Google's Nexus 4 and its sales model was not lost on wireless carriers, who have since moved to offer customers "no-contract" plans similar to Google's strategy.
T-Mobile was the first; customers still can buy a phone for $99, but T-Mobile makes it clear that's a down payment, and the customer pays off the balance of the phone's full cost in monthly installments.
Those payments are separate from their monthly service and data plan costs, and customers are not locked into a contract; they can leave for another carrier at any time by simply paying off whatever is left owing for the phone.
AT&T and Sprint have followed with similar offerings.
That means, of course, that the Nexus 5, when it arrives, will no longer have the complete advantage the Nexus 4 did; as consumers have gotten smarter about the buying and selling of smartphones, so have wireless carriers.
Google will likely hope the Nexus 5's price -- unannounced at this point, but rumored to be $350 for a base version, still less than a $600 Samsung Galaxy S4 or a $650 Apple iPhone 5S -- will help it repeat the sales success of its well-received predecessor.
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